Ministers slow to react in tax row

Saturday 5 January 2008 00:06 BST

Chancellor Alistair Darling has admitted the Government should have moved faster to compensate those who lost out from the decision to scrap the 10p income tax rate.

And he indicated that he wants to do more in this autumn's Pre-Budget Report to help an estimated 1.1 million people who remain worse-off as a result of the change, even after the £2.7 billion compensation package announced last month.

Mr Darling rejected claims in a report from the Organisation for Economic Co-operation and Development that his decision to fund the tax handout from borrowing has put the Government's tax and spending rules at risk.

Giving evidence to the Commons Treasury Committee, Mr Darling said he borrowed to pay for the compensation package as it would have been a mistake to have taken money out of the economy just as it was slowing.

He insisted that he could still meet the Government's self-imposed fiscal rules, which require public sector borrowing to be held below 40% of national income.

"I think it would have been wrong at this stage to have taken that money out of the economy by, for example, compensatory tax increases elsewhere," he said.

"I believe that I can do that staying within the fiscal rules and I believe that that was the right way to do that for this year."

Mr Darling admitted ministers were too slow to react to concerns over the 10p rate, which flared up into the worst political row of Gordon Brown's premiership and contributed to Labour's collapse in the polls.

"If you are saying should we have gone faster and further, yes we should," he told the committee. "This should have been dealt with earlier. It wasn't.

"I have said on many occasions that I am sorry this situation arose in the first place."